Dividing A Business In A Maryland Divorce

Dividing property during a divorce can be stressful, and the uncertainty about the future could be upsetting. But once you understand how business assets are divided in a Maryland divorce, you will know how to move forward. Learn more about this topic below. Then contact our Rockville divorce attorneys at Shah & Kishore.

Is The Business Marital Property?

Maryland is an equitable property state. It means marital property has to be divided equitably. State law requires that the property division be fair, but it sometimes means 50/50. The court will consider many factors to determine what is fair.

Marital property in Maryland is the property acquired by one or both parties during the union. It does not matter whose name is on the title or who bought it. However, there are several types that are not considered marital property:

  • Property that you inherited or was gifted to you
  • Property that you acquired before the marriage
  • Property that was excluded in a prenuptial agreement
  • Property that can be traced to any of the above

Property in any of these categories is deemed by the court to be separate property. But what about a business acquired or created when you were married?

How A Business Is Divided In A Maryland Divorce

If the business was created or acquired when you were married, it is marital property. However, the business is subject to the same property exceptions. For example, if the capital that started the business stemmed from separate property, that would not be part of the marital estate.

If the business was started or acquired before you were married, it usually would not be considered marital property. However, if the company that was separate property increases in value while you are married, the increased value may be marital property.

The divorce court may also determine that the business has a marital and non-marital component. For example, one of the spouses may have put a lot of effort into the business and must be compensated for it during the divorce.

If you claim that the business is entirely or partially separate property, you must prove it is separate. So, you must keep excellent accounting records to prove it is separate property in court.

Also, while a business may be marital property, the court cannot change stock ownership in the firm from one spouse to another. Therefore, equitable distribution of the business may be infeasible depending on how ownership in the business is divided. But you and your attorney can consider other ways to fairly compensate each party other than dividing the business.

How Is A Business Valued During Divorce?

Valuing a business during divorce is complex. The value of the business will be determined by considering the following:

  • Tangible property
  • Intangible property
  • Assets
  • Liabilities

The business valuation process usually starts with an appraiser’s inventory of the business’s tangible property. This might include inventory, machinery, equipment to build products, office equipment, vehicles, etc. Buildings also are tangible property if you own them outright. The cash that is in the business bank account also counts.

Business liabilities also must be considered. Again, the labilities are essential to keep in mind when valuing the business. Some of the liabilities and debts to consider are rent for a building, lines of credit, and ongoing payments for ongoing services.

Intangible assets may be more challenging to value, but taking them into consideration is essential for the company’s bottom line. One of the most important intangible assets is customer goodwill. This is how your customers, prospects, and others in the community view your business. How well you treat customers is part of goodwill and how much the business participates in the community.

When the business is valued, its profits also must be calculated. So, you should prepare a complete analysis of the firm’s financial records.

What Factors Does The Court Consider When Dividing The Business?

After the appraisal team values the business, the divorce court will consider many factors to divide it:

  • Whether it was in existence before the marriage and how much is owned by each partner.
  • How involved each person was in the business. If one of the spouses was rarely involved in the business, the court may consider other marital property to award them. 
  • Each partner brought value to the business, including customer relationships and business qualifications.
  • Whether either of you borrowed from family to create the business or buy assets for it.
  • Whether one of you can buy the other out.
  • How you will divide the other assets and liabilities of the marriage.
  • How much each spouse can earn outside of the business. If one of the spouses cannot earn a reasonable income outside of the marriage, that is a critical consideration. 

How A Maryland Divorce Attorney Can Help

It is common for emotions to rise during a divorce. However, the health of your business must negotiate a fair division of assets for both parties. A Maryland divorce and property division attorney will carefully analyze your business to determine how to move forward. Some options that your attorney may consider include:

  • Is it possible to leave the business intact and offer one of the spouses a customized compensation plan? This could be preferable, so no business operations are disturbed. It also may be appropriate if one of the spouses is uninterested in operating the business after divorce.
  • Is it best to sell the business and divide the proceeds in your best interest? Or is buying out the other spouse after a professional valuation preferable?
  • Can the business value be part of a larger financial settlement?
  • Can the compensation from one to the other spouse be done in a way to ensure the continued financial viability of the business?

Contact Our Rockville Divorce Attorneys Today

If you own a business and are going through a divorce, you may be concerned about how the asset will be divided. It is essential to be represented by an experienced divorce and property division attorney to protect your rights. Please contact our Rockville divorce attorneys at Shah & Kishore today at (301) 315-0001 for assistance with your divorce.

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